MUMBAI: Outlining the potential of artificial intelligence (AI) to enhance access to finance and also its efficiency, Reserve Bank deputy governor T Rabi Shankar has warned of ethical issues such as bias and accountability, and called for regulatory frameworks that enable innovation while maintaining stability.
Artificial intelligence (AI) can transform how the financial sector operates by improving access, efficiency, and resilience, but only if used responsibly, said Shankar told the global fintech summit here Tuesday.
“AI can expand financial access, strengthen safeguards, and reimagine efficiency,” said Shankar, adding its ability to draw insights from alternative data such as transaction histories or utility payments can make credit assessment for unbanked customers more inclusive. “The use of massive data sources could also help detect fraud in real-time and improve market risk modelling,” he noted.
According to him, AI has already begun transforming operational processes. “From KYC and loan processing to customer support through bots and virtual assistants, AI can deliver a paradigm shift in cost reduction and efficiency. Natural language processing can make document handling seamless, while robo-advisors are helping small investors access affordable financial advice,” he said.
However, Shankar warned that the same data-driven systems that create efficiency can also embed bias. “AI systems trained on biased data can perpetuate discrimination in areas like credit profiling or hiring,” he said. “The lack of explainability, the so-called ‘black box’ problem, makes it hard for regulators and auditors to understand decisions, undermining accountability.”
He also warned about systemic risks. “When AI-driven trading models behave similarly, they can increase market volatility,” he said. “Assigning responsibility for AI mistakes is difficult, and legal frameworks often struggle to keep pace with rapid technological change.”
Highlighting ethical concerns, he added, “using behavioural data for manipulative cross-selling or profiling raises serious questions. And while the debate on job displacement continues, what makes AI unique is that it creates intelligence itself, potentially making the human brain redundant, which is unprecedented.”
Shankar emphasised that recognising these risks should not hinder innovation. “The key is to enable innovation while safeguarding systemic stability,” he said, and advocated for regulatory frameworks that promote safe experimentation through sandboxes and open digital infrastructures, allowing firms to innovate responsibly.
The RBI’s initiatives such as the establishment of a committee on AI to draft guiding principles for responsible use, anchored in “trust, fairness, and accountability”, points out Shankar.
“AI can inform decisions, but it cannot own them; accountability must remain with humans,” he said.
Shankar added that the RBI’s approach remains one of “progress with prudence. Through projects like Mule Hunter, an AI tool to combat mule accounts, and the upcoming digital payments intelligence platform, we aim to foster innovation without compromising stability,” he said, adding “AI holds immense promise, but its use must never come at the cost of the system’s integrity.”
